Safeway Should Sell Canadian Operations Says BMO

Supermarket company Safeway has been rearranging its assets and BMO has a suggestion for it: Sell the Canadian operations.

Associated Press

The analysts go as far as to predict that if Safeway Canada was put on the block, there would be a bidding war for it, judging by some recent action by the likely bidders. BMO said the unit is worth around $5.5 billion, which is more than Safeway’s current $4.4 billion market capitalization, but the analysts cautioned “have no insight as to whether a potential sale is or is not in the works.”

Safeway shares jumped 7.3% to $20.21 in recent trading, the first time the stock has been above $20 since early May.

BMO’s analysts point to recent moves by two other Canadian supermarket chains, Loblaw Cos. and Metro Inc., and say both appear to be raising funds to prepare for a Safeway bid.

Metro, which runs a network of more than 600 food stores and 250 drug stores in Quebec and Ontario, said on Tuesday that it was selling part of its stake in Alimentation Couche-Tard Inc. The sale will raise about $479 million, the company said.

Loblaw, meanwhile, announced late last year that it was launching an IPO for its real-estate holdings into a REIT. BMO said that plan could raise almost $700 million for Loblaw, Canada’s largest food retailer.

Those moves, BMO said, “have further fueled the speculation that some Canadian food retailers are monetizing assets in an effort to increase financial flexibility in anticipation of a bidding war for Safeway Canada.”